RBA leaves interest rates unchanged

The Reserve Bank has left interest rates on hold following a robust inflation reading in September, marking the first Melbourne Cup day in six years that rates will remain unchanged.

The cash rate was held steady at 3.25 per cent today, the level it moved to when rates were cut by 25 basis points in October.

The decision to delay further interest rate relief will surprise the majority of economists who anticipated a cut, and disappoint borrowers who were hoping for a rate reduction.

The Australian dollar rose on the decision, moving from $US1.0368 in the moments before the announcement to about $US1.043.

INFLATION FLAGGED

The RBA flagged said a rise in inflation during the September quarter, in part due to the introduction of the carbon tax, was one of the factors in today's decision.

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"With prices data slightly higher than expected and recent information on the world economy slightly more positive, the board judged that the stance of monetary policy was appropriate for the time being,'' said RBA governor Glenn Stevens in the accompanying statement.

"The introduction of the carbon price affected consumer prices in the September quarter, and there could be some further small effects over the next couple of quarters."

Rochford Capital managing director Thomas Averill said the Reserve Bank was playing "wait-and-see" game by delaying a decision to cut.

"The RBA want to keep some bullets in the gun," he said.

"If they cut too aggressively and things start to deteriorate, then you have same situation as you have (overseas) where central banks have cut rates so much that monetary policy has become a blunt instrument."

He said the next decision in December would be another 50-50 call.

SURPRISE DECISION

National Australia Bank group chief economist Alan Oster said he was surprised by the RBA's decision.

''They seem to be saying the world is a bit better, inflation is a bit higher and growth is around trend,'' he said.

''My initial reaction is that the RBA is going to sit and wait for a little while. I still think they have one more cut to come," said Mr Oster.

ANZ head of economic research Ivan Colhoun agreed that the Reserve Bank was factoring in previous rate cuts into its decision.

"They are looking at how their past decisions are flowing into the data, which suggests they will be somewhat gradual (with their decision-making)," he said.

He said the bank hinted at the need for other sectors of the economy to pick up in order to offset the decline in resources.

"Reading between the lines, it looks like, if they don't get signs that they are picking up, then they would be prepared to ease some more," he said. "But that would probably be later next year."

RBA: BENEFITS TO COME

The RBA also stressed that the full effect of the 150 basis points in cuts its made since November 2011 had not been be felt by consumers and businesses.

"Further effects of actions already taken to ease monetary policy can be expected over time,'' said Mr Stevens.

"The Board will continue to monitor those effects, together with information about the various other factors affecting the outlook for growth and inflation."